TEXT-Fitch raises rating to XL Axiata AAA (idn); outlook stable
(The following statement was released by the rating agency)
Jan 25 - Ratings has upgraded the rating Long-Term Foreign Currency and Local Currency Issuer Default Rating (IDR) PT. XL Axiata Tbk (XL) to 'BBB' from 'BB +'. Simultaneously, the National Long-Term rating was also raised to 'AAA (idn)' from 'AA + (idn)'. The prospect is Stable.
Fitch's ratings show a rise in the rankings XL should better reflect the closeness to the credit profile of its parent company, Axiata Group Berhad (Axiata), which has ownership of 66.7% due to a strong link between the two companies. In late September 2012, XL is the largest subsidiary of Axiata, demonstrated by its contribution to 40% of revenue and 46% EBITDA. This contribution is higher than the contribution of 34% revenue and 36% of EBITDA in 2009. XL is also a subsidiary of the fastest-growing with the growth of double-digit revenue.
Fitch argues that Axiata has a strong ability to support XL with extra cash when needed because of the conservative credit profile and operations in Malaysia, which has run stable.
Fitch found that the stand-alone credit profile of XL in 2013 will improve as capital spending has peaked in 2012 at IDR8.5 trillion, mostly for developing 3G infrastructure. This allows XL to re-generate free cash flow (FCF) positive in 2013 after producing a negative FCF in 2012. Strong credit profile of XL also based on revenue growth above industry average and EBITDAR margins were solid at 47% to be able to keep annual capital expenditure budget IDR7-8 trillion and dividend pay-out ratio of 30% of revenue net. Fitch believes XL are aggressively investing in 2012 is higher than the second largest telecommunications company - PT Indosat Tbk (Indosat, 'BBB' / Stable) will provide benefits to the level of profits and lower consumer disconnection (customer churn). XL is the third largest telecommunications company with a market that is slightly lower than the Indosat.
Fitch found that the three largest telecommunications companies will dominate the rapidly growing market of data backed up with a strong position in the voice market and the ability to invest in 3G infrastructure. Weaker telecom companies will find it difficult to increase market share because they are still losing money EBITDA and balance sheet is not strong enough to support the development of infrastructure investment data. In addition, the CDMA telecom companies will find it difficult to continue to grow due to the loss of customers and therefore will undertake infrastructure investment that is smaller than the GSM telecommunications company.
Ranking the positive actions can happen when:
- Improved ranking Axiata XL will benefit the international rankings. However, the increase of the rank of Foreign Currency Long-Term S will depend on the increase in Indonesia Country Ceiling. Foreign Currency Rating S XL currently at the same level with the Country Ceiling Indonesia.
Negative actions on the ratings could have occurred when:
- Decline of the Country Ceiling Indonesia will lead to lower ratings Long Term Foreign Currency USD from XL.
- The weakening of ties with Axiata.
- Axiata downgrade.
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